Question

Is obtaining insurance a feasible risk treatment option? Why or why not?

Answer 1

Treating risks has many options and the most feasible option to treat it is chosen based on the risk level and the parties involved in facing the risk. The risk can be avoided, reduced, transferred, or accepted. Obtaining insurance is a method of treating risk when the risk has to be transferred to a third party. This usually happens when the risk cannot be avoided or reduced and insurance can help us deal with it by sharing the responsibility of the occurrence from the risk fully or partly. They charge a premium from us for this service and pay us full on the agreed terms for the loss or damage if the risk occurs.

Insurance is taken as a risk treatment when it is accepted that risk can occur and cannot be avoided or mitigated in any way. For example, when a car is purchased, its risk of meeting an accident comes with it. Even if the owner of the car is very careful to avoid any accident, it may occur with the fault of another vehicle on the road. Hence this is a risk that cannot be avoided or reduced. In this case, insurance is taken to transfer the risk to the insurance company by paying a premium for it. The insurance company in return takes the responsibility of bearing all the costs of damages in the car on the occurrence of the accident or any risks mentioned in the agreement.